Inheritance tax rates

Published: 28 Feb 2014

Updated: 13 Mar 2018

On death, the value of a person's property, with a few exceptions, is subject to inheritance tax. The estate below a threshold, known as the nil rate band, is exempt from inheritance tax, and the excess is taxed according to the table below. During a person's lifetime, transfers of property into a relevant property trust which exceed the available nil rate band are known as chargeable lifetime transfers and subject to tax at a rate in the following table.

 

2018-19 2017-18 Note
Nil rate band (NRB) £1 - £325,000 0.00% 0.00% A
Over £325,000 40% 40% B, C
Main exemptions   Gifts on marriage   
Annual gift per donor £3,000 Parent £5,000
Small gifts per donee £250 Grandparent/ancestor    £2,500
Normal expenditure out of income Exempt  Other £1,000

A Additional residence nil rate band (RNRB) of £125,000 (£100,000 in 2017/18) for transfers of a main residence to direct descendants. 
NRB and RNRB for estate of surviving spouses are increased by unutilised percentage of NRB and RNRB of predeceased spouse. RNRB tapers away for estates over £2 million
B Some lifetime gifts are taxed at 20%
C Tax rate reduced to 36% where 10% or more of net chargeable estate is left to charity

Transfers between spouses are free of inheritance tax. Any nil rate band which has not been used on the death of the first spouse transfers to the second spouse to reduce the taxable estate.


The effective rate of inheritance tax is reduced to 36% where more than 10% of the estate is given to charity.


Further information on the exemption for transfers of business property can be read in our article about business property relief.

 

Taper relief

There is no inheritance tax on a gift which is made more than seven years after a person's death. Where a person dies between three and seven years after making a gift, the full rate of tax is reduce at a rate of 20% per year, as the following table illustrates:

 

Time since death Effective rate of inheritance tax
Between three and four years 32%
Between four and five years 24%
Between five and six years 16%
Between six and seven years 8%

 

Quick succession relief


Where a person dies within five years of receiving property (whether by a lifetime or death gift) on which inheritance tax has already been paid, the tax due on the estate is reduced by quick succession relief. The inheritance tax liability is calculated as: Tax paid on first transfer × value after tax/value before tax × percentage in the table below

 

Time since death Percentage inheritance tax relief
Less than a year 100%
Between one and two years 80%
Between two and three years 60%
Between three and four years 40%
Between four and five years 20%

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